Catalan independence cause chaos for Spanish stocks

The IBEX 35 is in the red after Catalonia voted for independence from Spain.

Europe

That vote was quickly followed by the Spanish government passing article 155, which gives the Madrid administration the right to impose direct rule on the region. The political outlook is very uncertainty, and investors are getting more nervous by the minute. Investors will be reluctant to hold Spanish stocks over the weekend, for fear we could see a repeat of the violence that took place on the referendum day.

Mining companies like Glencore, Anglo American, Rio Tinto and BHP Billiton are all lower on the day due to a sell-off in the metals market. China has met its target for cutting steel capacity this year, and it will look to reach a similar target for cement and aluminium – this triggered the fall in copper.

RBS shares are up 2.1% after the bailed out bank swing to profit in the third-quarter – which exceeded analysts’ forecasts. Profits for the period were £392 million, and the market was anticipating £310 million. Trimming costs and an absence of fines were responsible for profits. While interest rates remain at record-lows, the bank is finding it difficult to expand on their revenue. The Bank of England meeting next week could see the announcement of a rate hike – which would improve their chances of profitability. The stock hit a 22 month high today, and if the bullish sentiment continues it may target 300p.

Tullow Oil have plugged and abandoned a well off the coast of Suriname. The oil explorer was prudent in its exploration, so the venture was very low cost. The company will continue to operate in the region. Tullow has had a tough time over the past few years, as the weak oil market and a number of unsuccessful wells has put pressure on the company. The stock has been in decline since 2012, and if it breaks below its 100-day moving average at 166p, it could target 142p.

US

US indices are higher on the day, and the NASDAQ 100 is the stand out performer as impressive earnings from tech stocks like Alphabet, Microsoft, and Amazon last night ensured the index soared today.

Alphabet revealed a 24% jump in third quarter profits to $27.8 billion and earnings per share (EPS) jumped by 5.6% to $9.57, easily exceeding the $8.33 analysts were expecting. The core advertising business and the other operations are performing well, but investors are as bit concerned about the rising costs. Cost per click fell by 18% and traffic acquisition costs exceeded dealer’s forecasts. Alphabet is still pouring more money and resources into its cloud division, and this is an area that has huge growth potential. The tock is up over 5% today.

Amazon registered a 34% jump in revenue to $43.7 billion and that compared with the forecast of $42.14. The EPS came in at 52 cents, which smashed the estimate of 3 cents. Amazon saw sales in North America jump by 35%, the rest of the world saw sales rise by 29%. Amazon Web Services (AWS) posted a 42% jump in sales – it is the most profitable division in the company. Amazon is expanding in the cloud commuting, and it is proving to be successful. The share price has gained 11% today.

FX

GBP/USD is weaker as dealers are uncertainly grows in relation to the UK housing market. The Halifax house price optimism index fell to its lowest level in nearly 5 years. There were some small fears about the slight cooling of the British property market already, and this report sped up the selling. The pound will be in focus next week as the Bank of England will hold a meeting, and there is a lot of speculation we will see a rate hike.

EUR/USD came under selling pressure after the European Central Bank update yesterday hinted that additional easing beyond the September 2018 deadline could be introduced. The situation in Catalonia injected some volatility into the single currency. The declaration of independence by the Catalan parliament send the euro lower, but Madrid’s response voting in favour of imposing direct rule prompted a bounce back. Traders are unlikely to want to remain long the euro over the weekend, due to the uncertainty in Spain.

Commodities

Gold hit a 3 week low and the bounced higher as a reaction to the chatter that Donald Trump is apparently leaning towards Jerome Powell as the next Federal Reserve Chair. Mr Powell is one of the more neutral members of the US central bank, and this is helping the price of gold. Dealers feel that Mr Trump would favour a soft US dollar, so selecting Mr Powell would tie in with that view.

WTI and Brent Crude oil are higher on the day as market chatter continues about the possibility of OPEC extending their oil production cut beyond March 2018. Saudi Arabia yesterday claimed they would like to extend the production freeze until the end of next year. Oil producing countries doesn’t always deriver on their promises, but traders won’t want to call their bluff just yet.

WTI has hit a 6 month high, and Brent Crude oil traded above $60 per barrel – a level not seen since June 2015.CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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